Will FEMSA (FMX) Post Disappointing Earnings This Quarter?

Fomento Economico Mexicano, S.A.B. de C.V. FMX, also known as FEMSA, is set to report second-quarter 2014 results on Jul 25. Last quarter, it posted a positive surprise of 66.67%. Let us see how things are shaping up for this announcement.

Factors Influencing the Upcoming Quarter

We believe FEMSA's robust performance and initiatives to diversify its portfolio constitute its strengths. Going forward, we perceive the company's divestment of Quimiproductos has provided it with greater financial and strategic flexibility to pursue opportunities in its core businesses. Further, the company's efforts to diversify its product portfolio along with expansion of its convenience store chain bode well for future operating performance.

However, the company's results could be impacted by the imposition of tax on sugary beverages by the Mexican government in order to tackle the rising obese population of the country. This may lead to significant attrition in the Mexican soda market affecting the company's top and bottom lines.

Earnings Whispers?

Our proven model does not conclusively project FEMSA as likely to beat earnings this quarter. A stock needs to have both positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, that is not the case here due to the following factors:

Zacks ESP: ESP for FEMSA is 0.00% since the Most Accurate Estimate stands at 76 cents per share, which is in line with the Zacks Consensus Estimate.

Zacks #3 Rank (Hold): FEMSA's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into earnings announcement, especially when the company is undergoing negative estimate revisions.

Other Stocks to Consider

FEMSA is not the only firm looking up this earnings season. Our model shows that the following stocks have the right combination of elements to post an earnings beat:

Avis Budget Group Inc. CAR with an Earnings ESP of +3.18% and a Zacks Rank #1 (Strong Buy)

Archer Daniels Midland Co. ADM with an Earnings ESP of +9.33% and a Zacks Rank #2 (Buy)

Colgate-Palmolive Co. CL with an Earnings ESP of +1.37% and a Zacks Rank #2